SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


[X]   QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
      EXCHANGE ACT OF 1934 For the quarter ended September 30, 2002

                                       OR

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
     ACT OF 1934 For the transition period from __________ to ____________.

                                                Commission File Number   0-25933


                        SOUTHCOAST FINANCIAL CORPORATION
        (Exact Name of Small Business Issuer as Specified in its Charter)


         South Carolina                             58-2384011
   (State of Incorporation)              (I.R.S. Employer Identification Number)



               530 Johnnie Dodds Boulevard, Mt. Pleasant, SC 29464
                    (Address of Principal Executive Offices)


                                 (843) 884-0504
                           (Issuer's Telephone Number)


         Check whether the issuer (1) has filed all reports required to be filed
by  Section  13 or 15(d) of the  Exchange  Act during the past 12 months (or for
such shorter periods that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days.
        [X] Yes  [ ] No

         State the number of shares  outstanding of each of the issuer's classes
of common  equity,  as of the latest  practicable  date:  Common  Stock - No Par
Value: 1,321,152 Shares Outstanding on October 31, 2002.

         Transitional Small Business Disclosure Format (Check one):

         [ ] Yes [X] No










                                       1
<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  Financial Statements

                        SOUTHCOAST FINANCIAL CORPORATION
                           CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                                  (Unaudited)
                                                                                                 September 30,          December 31,
                                                                                                     2002                   2001
                                                                                                     ----                   ----
ASSETS
<S>                                                                                             <C>                     <C>
   Cash and due from banks .........................................................            $  8,575,648            $  6,627,108
   Federal funds sold ..............................................................              20,315,000                 560,000
   Investment securities available for sale ........................................               5,481,141               6,793,358
   Federal Home Loan Bank Stock, at Cost ...........................................               1,490,000               1,490,000
   Loans held for sale .............................................................               2,412,620               4,125,049
   Loans, net of allowance of $1,540,631 and $1,215,164 ............................             121,514,228              95,737,280
   Property and equipment - net ....................................................               8,408,908               7,748,698
   Other assets ....................................................................               1,806,880               1,227,427
                                                                                                ------------            ------------
       Total assets ................................................................            $170,004,425            $124,308,920
                                                                                                ============            ============

LIABILITIES
   Deposits
     Noninterest-bearing ...........................................................            $ 13,031,708            $ 12,667,145
     Interest bearing ..............................................................             117,621,573              69,188,562
                                                                                                ------------            ------------
       Total deposits ..............................................................             130,653,281              81,855,707

   Other borrowings ................................................................              21,300,000              30,400,000
     Other liabilities .............................................................               1,674,431                 503,721
                                                                                                ------------            ------------
       Total liabilities ...........................................................             153,627,712             112,759,428
   Trust preferred securities ......................................................               4,000,000                       -

SHAREHOLDERS' EQUITY
   Common stock (no par value; 20,000,000 shares authorized;
     1,321,152 shares outstanding at September 30,2002 and
     1,197,482 at December 31, 2001) ...............................................              11,370,268              11,339,708
   Retained earnings ...............................................................                 960,032                 142,621
   Accumulated other comprehensive income ..........................................                  46,413                  67,163
                                                                                                ------------            ------------
       Total shareholders' equity ..................................................              12,376,713              11,549,492
                                                                                                ------------            ------------
       Total liabilities and shareholders' equity ..................................            $170,004,425            $124,308,920
                                                                                                ============            ============
</TABLE>







         See notes to consolidated financial statements.


                                       2
<PAGE>


                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                     Nine months        Nine months     Three months   Three months
                                                                        Ended              ended           Ended           Ended
                                                                   Sept. 30, 2002      Sept 30, 2001   Sept 30, 2002   Sept 30, 2001
                                                                   --------------      -------------   -------------   -------------
INTEREST INCOME
<S>                                                                    <C>              <C>              <C>              <C>
Loans, including fees ..........................................       $6,466,157       $5,989,743       $2,340,002       $2,051,856
Investment securities ..........................................          242,513          341,142           95,204          118,041
Federal funds sold .............................................          115,929           71,233           36,909           17,605
                                                                       ----------       ----------       ----------       ----------

         Total interest income .................................        6,824,599        6,402,118        2,472,115        2,187,502

INTEREST EXPENSE
Deposits and borrowings ........................................        2,841,092        3,375,371        1,081,559        1,087,512
                                                                       ----------       ----------       ----------       ----------

         Net interest income ...................................        3,983,507        3,026,747        1,390,556        1,099,990

Provisions for possible loan losses ............................          364,301          200,000          105,129           75,000
                                                                       ----------       ----------       ----------       ----------

Net interest income after provision ............................        3,619,206        2,826,747        1,285,427        1,024,990

NON INTEREST INCOME
Service fees on deposit accounts ...............................          444,617          313,400          171,337          119,506
Fees on loans sold .............................................          409,055          368,776          136,255          133,942
Other ..........................................................          480,009           94,762          150,983           25,111
                                                                       ----------       ----------       ----------       ----------

     Total non interest income .................................        1,333,681          776,938          458,575          278,559

NON INTEREST EXPENSES
Salaries and employment benefits ...............................        2,167,915        1,790,985          737,579          643,548
Occupancy ......................................................          281,076          178,844           95,172           64,785
Furniture and equipment ........................................          356,145          294,531          132,521           97,519
Advertising and public relations ...............................           74,722           56,851           22,985           21,893
Professional fees ..............................................           96,027          122,829           32,400           38,450
Travel and entertainment .......................................          111,088          137,801           37,222           35,322
Telephone, postage and supplies ................................          207,728          163,643           69,397           57,747
Other operating expenses .......................................          314,790          177,014          113,027           60,965
                                                                       ----------       ----------       ----------       ----------

         Total non-interest expenses ...........................        3,609,491        2,922,498        1,240,303        1,020,229
                                                                       ----------       ----------       ----------       ----------

     Income before income tax ..................................        1,343,396          681,187          503,699          283,320
     Income tax ................................................          525,985          242,937          197,504          101,245
                                                                       ----------       ----------       ----------       ----------

     Net income ................................................       $  817,411       $  438,250       $  306,195       $  182,075
                                                                       ==========       ==========       ==========       ==========

Basic Net income Per Common Share ..............................       $      .62       $      .38       $      .23       $      .16
Diluted Net Income Per Common Share ............................       $      .60       $      .37       $      .22       $      .15

Weighted Average Shares Outstanding

     Basic .....................................................        1,319,578        1,138,427        1,320,179        1,319,578
     Diluted ...................................................        1,371,790        1,173,055        1,375,341        1,370,140
</TABLE>


                 See notes to consolidated financial statements.



                                       3
<PAGE>

           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                         Accumulated         Total
                                                               Common stock                                  Other           share-
                                                               ------------               Retained       comprehensive      holders'
                                                             Shares        Amount         earnings       income (loss)       equity
                                                             ------        ------         --------       -------------       ------

<S>                                                     <C>             <C>             <C>             <C>             <C>
BALANCE, JANUARY 1, 2001 ............................        947,872    $  9,669,155    $   (503,796)   $    (12,793)   $ 9,152,566

     Stock dividend .................................         93,756

     Net income .....................................                                        438,250                        438,250

     Other comprehensive income, net of tax:
         Unrealized holding gains on
              securities available for sale .........                                                         88,725         88,725
                                                                                                                        -----------
     Comprehensive income ...........................                                                                       526,975

     Repurchase of stock ............................        (11,775)       (109,102)                                      (109,102)
     Employee stock purchase plan ...................          5,734          40,868                                         40,868
     Issuance of common stock .......................         56,190         622,040                                        622,040
                                                        ------------    ------------                                    -----------

BALANCE, September 30, 2001 .........................      1,091,777    $ 10,222,961    $    (65,546)   $     75,932    $10,233,347
                                                        ============    ============    ============    ============    ===========

BALANCE, JANUARY 1, 2002 ............................      1,197,482    $ 11,339,708    $    142,621    $     67,163    $11,549,492

     Stock dividend .................................        120,016

     Net income .....................................                                        817,411                        817,411

     Other comprehensive income, net
         of tax:
         Unrealized holding losses on
              securities available for sale .........                                                       (20,750)        (20,750)
                                                                                                                        -----------

     Comprehensive income ...........................                                                                       796,661
     Employee stock purchase plan ...................          3,654          30,560                                         30,560
                                                        ------------    ------------                                    -----------

BALANCE, September 30, 2002 .........................      1,321,152    $ 11,370,268    $    960,032    $     46,413    $12,376,713
                                                        ============    ============    ============    ============    ===========
</TABLE>


           See notes to consolidated financial statements.



                                       4
<PAGE>

                        SOUTHCOAST FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                                                                    Nine months ended Sept. 30,
                                                                                                    ---------------------------
OPERATING ACTIVITIES                                                                                2002                   2001
                                                                                                    ----                   ----
<S>                                                                                          <C>                       <C>
     Net income ................................................................             $    817,411              $    438,250
     Adjustments to reconcile net income to net
     cash provided by operating activities:
         Income tax ............................................................                  525,985                   242,937
         Provision for possible loan losses ....................................                  364,301                   200,000
         Depreciation and amortization .........................................                  385,131                   313,392
         Increase in other assets ..............................................               (1,092,093)                 (866,020)
         Increase in other liabilities .........................................                1,170,710                   328,321
                                                                                             ------------              ------------
              Net cash provided by operating activities ........................                2,171,445                   656,880

INVESTING ACTIVITIES

     Increase in federal funds sold ............................................              (19,755,000)               (1,749,000)
     Sale of investment securities available for sale ..........................                1,263,497                (2,478,066)
     Net increase in loans .....................................................              (24,428,820)              (20,465,712)
     Purchase of property and equipment ........................................               (1,030,716)               (1,595,108)
                                                                                             ------------              ------------
              Net cash used for investing activities ...........................              (43,951,039)              (26,287,886)

FINANCING ACTIVITIES
     Increase (decrease) in borrowings .........................................               (9,100,000)               11,075,000
     Increase in Trust preferred securities ....................................                4,000,000                         0
     Purchase of common stock ..................................................                        0                  (109,102)
     Proceeds from sale of stock, net ..........................................                   30,560                   662,908
     Net increase in deposits ..................................................               48,797,574                15,876,627
                                                                                             ------------              ------------

              Net cash provided by financing activities ........................               43,728,134                27,505,433

              Increase in cash and due from banks ..............................                1,948,540                 1,874,427


CASH AND DUE FROM BANKS, BEGINNING OF PERIOD ...................................                6,627,108                 3,942,566

CASH AND DUE FROM BANKS, END OF PERIOD .........................................             $  8,575,648              $  5,816,993
                                                                                             ============              ============
</TABLE>







                 See notes to consolidated financial statements.


                                       5
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

         The accompanying  unaudited financial  statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America for interim  financial  information  and with the  instructions  to Form
10-QSB  and  item  310 (b) of  Regulation  S-B of the  Securities  and  Exchange
Commission.  Accordingly  they do not include all information and notes required
by generally accepted accounting  principles for complete financial  statements.
However,  in the opinion of management,  all  adjustments  (consisting of normal
recurring  adjustments)  considered  necessary for a fair presentation have been
included.

NOTE 2 - ORGANIZATION

         Southcoast  Financial  Corporation  (the "Company") is a South Carolina
corporation  organized  in 1999 for the  purpose of being a holding  company for
Southcoast Community Bank (the "Bank"). On April 29, 1999, pursuant to a Plan of
Exchange approved by the shareholders,  all of the outstanding shares of capital
stock of the Bank were exchanged for shares of common stock of the Company.  The
Company  presently engages in no business other than that of owning the Bank and
has no employees.

NOTE 3 - NET INCOME  PER SHARE

         Net income per share is computed on the basis of the  weighted  average
number of common shares  outstanding  in accordance  with Statement of Financial
Accounting Standards No. 128, "Earnings per Share". The treasury stock method is
used to compute the effect of stock  options on the weighted  average  number of
shares outstanding for diluted earnings per share.

         In April,  2002, the Company  declared a ten- percent stock dividend in
the Company's  common stock. The weighted average number of shares and all other
share data have been  restated  for all periods  presented to reflect this stock
dividend.


NOTE 4 - Trust Preferred Securities

         In  May  2002,  the  Company  issued  $4  million  of  Trust  Preferred
Securities.  These  securities  are  considered  Tier 1 capital  for  regulatory
purposes. They have a five-year call date with a maturity date of June 30, 2032.
The interest rate on the securities floats quarterly with the three-month LIBOR.




                                       6
<PAGE>


ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

           The following  discussion and analysis  should be read in conjunction
with the financial  statements and related notes appearing in the Form 10-KSB of
Southcoast  Financial  Corporation.  Results of operations for the period ending
September 30, 2002 are not necessarily  indicative of the results to be attained
for any  other  period.  Statements  included  in  Management's  Discussion  and
Analysis  which are not  historical  in nature and are  intended  to be, and are
hereby  identified  as "forward  looking  statements"  for  purposes of the safe
harbor  provided  by section  21E of the  Securities  Exchange  Act of 1934,  as
amended.  The Company cautions readers that forward looking statements including
without limitation, those relating to the Company's new offices, future business
prospects,  revenues, working capital, liquidity, capital needs, interest costs,
and income,  are  subject to certain  risks and  uncertainties  that could cause
actual results to differ from those indicated in the forward looking statements,
due to several  important  factors herein  identified,  among others,  and other
risks and factors  identified  from time to time in the Company's  reports filed
with the Securities and Exchange Commission.

RESULTS OF OPERATIONS

         The Company's  net income for the nine months ended  September 30, 2002
was  $817,411  or $.62 per basic  share,  compared to $438,250 or $.38 per basic
share,  for the nine months  ended  September  30, 2001.  For the quarter  ended
September 30, 2002,  net income was $306,195 or $.23 per basic share compared to
$182,075 or $.16 per basic share for the quarter ended September 30, 2001.


NET INTEREST INCOME

         Net interest  income is the difference  between the interest  earned on
interest  earning  assets and the  interest  paid for funds  acquired to support
those  assets.  Net  interest  income,  the  principal  source of the  Company's
earnings,  was $3,983,507 for the nine months ended September 30, 2002, compared
to  $3,026,747  for the nine months ended  September  30, 2001.  For the quarter
ended  September  30,  2002,  net  interest  income was  $1,390,556  compared to
$1,099,990 for the quarter ended September 30, 2001.

         Changes that affect net interest income are changes in the average rate
earned on interest earning assets,  changes in the average rate paid on interest
bearing  liabilities,  and changes in the volume of interest  earning assets and
interest bearing liabilities.

         Average  earning  assets for the nine months ending  September 30, 2002
increased to $128.5 million or 32.4 percent from the $97.0 million  reported for
the nine months ending September 30, 2001. The increase was mainly  attributable
to the  increase  in loans  supported  by a $27.7  million  increase in interest
bearing  liabilities  which resulted from the continued growth of the Charleston
market area, and the Company's marketing efforts.

         The following table compares the average balances, yields and rates for
the interest  sensitive  segments of the Company's  balance  sheets for the nine
months ended September 30, 2002 and 2001. The increase in net interest income is
due to  increased  volume of earning  assets and  interest  bearing  liabilities
coupled with a 17 basis point increase in the Company's net interest spread. The
net interest spread is the difference  between the yield on earning assets minus
the average rate paid on interest bearing liabilities.




                                       7
<PAGE>


<TABLE>
<CAPTION>
                                                            Nine months ended                             Nine months ended
                                                           September 30, 2002                            September 30, 2001
                                                           ------------------                            ------------------
                                                   Average      Income/       Yield/          Average         Income/        Yield/
ASSETS                                             Balance      expense      rate(1)          Balance         expense       rate(1)
                                                   -------      -------      -------          -------         -------       -------

<S>                                           <C>               <C>              <C>     <C>               <C>                <C>
Federal funds sold ........................   $  9,212,295      $  115,929       1.68%   $  2,060,794      $   71,233          4.61%
Investments ...............................      7,191,420         294,369       5.46       6,854,729         341,142          6.64
                                              ------------      ----------               ------------      ----------
Total investments and
  federal funds sold ......................     16,403,715         410,298       3.34       8,915,523         412,375          6.17
Loans .....................................    112,057,763       6,466,157       7.69      88,121,302       5,989,743          9.06
                                              ------------      ----------               ------------      ----------
Total earning assets ......................    128,461,478       6,876,455       7.14      97,036,825       6,402,118          8.80
                                                                ----------                                 ----------
Other assets ..............................     10,640,492                                  8,655,306
                                              ------------                               ------------
Total assets ..............................   $139,101,970                               $105,692,131
                                              ============                               ============

LIABILITIES
Interest bearing deposits .................   $ 91,643,541      $2,183,441       3.18    $ 66,021,900      $2,563,775          5.18
Other borrowings ..........................     22,301,256         709,507       4.24      20,251,563         811,596          5.34
                                              ------------      ----------               ------------      ----------
Total interest bearing
     Liabilities ..........................    113,944,797       2,892,948       3.39      86,273,463       3,375,371          5.22
                                                                ----------                                 ----------
Non-interest bearing
     Liabilities ..........................     14,264,530                                  9,975,034
                                              ------------                               ------------
Total liabilities .........................    128,209,327       2,892,948       3.01      96,248,497       3,375,371          4.68
                                                                ----------                                 ----------
Equity ....................................     10,892,643                                  9,443,634
                                              ------------                               ------------
Total liabilities and
     Equity ...............................   $139,101,970                               $105,692,131
                                              ============                               ============
Net interest income/margin ................                     $3,983,507       4.13                      $3,026,747          4.16
                                                                ==========                                 ==========
Net interest spread .......................                                      3.75                                          3.58
</TABLE>


(1)  Annualized

         As reflected  above,  for the nine months ended  September 30, 2002 the
average  yield on earning  assets was 7.14  percent,  while the average  cost of
interest-bearing  liabilities  was  3.39  percent.  For the  nine  months  ended
September 30, 2001 the average yield on earning  assets was 8.80 percent and the
average cost of interest-bearing  liabilities was 5.22 percent.  The decrease in
the yield on earning  assets is  attributable  to the market rate decreases over
the last year.  The net  interest  margin is  computed by  subtracting  interest
expense  from  interest  income and  dividing  the  resulting  figure by average
interest-earning  assets.  The net  interest  margin for the nine  months  ended
September 30, 2002 was 4.13 percent compared to 4.16 percent for the nine months
ended September 30, 2001. The decrease in the  net-interest  margin is primarily
attributable  to the increased  volume in higher cost  certificates  of deposit,
which were generated from a special marketing campaign introduced in April 2002.
This  campaign  was  associated  with the opening of a new  branch.  The company
raised over $30.0 million with this campaign.  The cost of total liabilities was
3.01  percent  for the nine months  ended  September  30, 2002  compared to 4.68
percent for the nine months ended September 30, 2001.


                                       8
<PAGE>


         The following  table presents the same  information for the three-month
period ended September 30, 2002 and 2001.


<TABLE>
<CAPTION>
                                                           Three months ended                            Three  months ended
                                                           September 30, 2002                            September 30, 2001
                                                           ------------------                            ------------------
                                                 Average          Income/       Yield/        Average         Income/        Yield/
ASSETS                                           Balance          expense      rate(1)        Balance         expense       rate(1)
                                                 -------          -------      -------        -------         -------       -------

<S>                                           <C>               <C>             <C>      <C>               <C>                <C>
Federal funds sold ........................   $  8,418,213      $   36,909       1.75%   $  2,046,113      $   17,605          3.44%
Investments ...............................     11,095,591         147,060       5.30       7,384,766         118,041          6.39
Total investments and
     federal funds sold ...................     19,513,804         183,969       3.77       9,430,879         135,646          5.75
Loans .....................................    125,278,208       2,340,002       7.47      95,080,482       2,051,856          8.63
                                              ------------      ----------               ------------      ----------
Total earning assets ......................    144,792,012       2,523,971       6.97     104,511,361       2,187,502          8.37
                                                                ----------                                 ----------
Other assets ..............................     10,044,130                                  8,771,686
                                              ------------                               ------------
Total assets ..............................   $154,836,142                               $113,283,047
                                              ============                               ============

LIABILITIES
Interest bearing deposits .................   $108,487,151         945,565       3.49    $ 68,459,737      $  793,255          4.63
Other borrowings ..........................     21,422,222         187,850       3.51      24,601,395         294,257          4.78
                                              ------------      ----------               ------------      ----------
Total interest bearing
     Liabilities ..........................    129,909,373       1,133,415       3.49      93,061,132       1,087,512          4.67
                                                                ----------                                 ----------
Non-interest bearing
     Liabilities ..........................     13,703,615                                 10,658,943
                                              ------------                               ------------
Total liabilities .........................    143,612,988       1,133,415       3.16     103,720,075       1,087,512          4.19
                                                                ----------                                 ----------
Equity ....................................     11,223,154                                  9,562,972
                                              ------------                               ------------
Total liabilities and
     Equity ...............................   $154,836,142                               $113,283,047
                                              ============                               ============
Net interest income/margin ................                     $1,390,556       3.84                      $1,099,990          4.21
                                                                ==========                                 ==========
Net interest spread .......................                                      3.48                                          3.70
</TABLE>

(1)  Annualized

         As reflected  above,  for the three months ended September 30, 2002 the
average  yield on earning  assets was 6.97  percent,  while the average  cost of
interest-bearing  liabilities  was 3.49  percent.  For the  three  months  ended
September 30, 2001 the average yield on earning  assets was 8.37 percent and the
average cost of interest-bearing  liabilities was 4.67 percent.  The decrease in
the  yield on  earning  assets  is  attributable  to the  market  interest  rate
decreases during the last year on the interest earning assets.  The net interest
margin is computed by  subtracting  interest  expense from  interest  income and
dividing  the  resulting  figure by  average  interest-earning  assets.  The net
interest  margin for the three months ended  September 30, 2002 was 3.84 percent
compared to 4.21  percent for the three  months ended  September  30, 2001.  The
decrease in the  net-interest  margin is attributable to the increased volume in
higher  cost  certificates  of  deposit,  which  were  generated  from a special
marketing  campaign  introduced in April 2002. This campaign was associated with
the opening of a new  branch.  The  company  raised  over $30 million  with this
campaign.  The cost of total  liabilities  was 3.16 percent for the three months
ended  September  30, 2002  compared to 4.19  percent for the three months ended
September 30, 2001.



                                       9
<PAGE>


         The  following  table  presents  changes in the  Company's net interest
income  which are  primarily  a result of changes in the volume and rates of its
interest-earning assets and interest-bearing liabilities.


Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
                                                                                For the Nine  months ended September 30, 2002
                                                                                 Versus Nine months ended  September 30, 2001
                                                                                 ------------------------  ------------------
                                                                            Volume                  Rate                Net change
                                                                            ------                  ----                ----------
<S>                                                                      <C>                    <C>                     <C>
Federal funds sold ..........................................            $   247,263            $  (202,567)            $    44,696
Investments .................................................                 16,767                (63,540)                (46,773)
                                                                         -----------            -----------             -----------
Total investments and federal funds sold ....................                264,030               (266,107)                 (2,077)
Total loans .................................................              1,626,483             (1,150,069)                476,414
                                                                         -----------            -----------             -----------
Total earning assets ........................................              1,890,513             (1,416,176)                474,337
Total interest-bearing liabilities ..........................              1,077,491             (1,559,914)               (482,423)
                                                                         -----------            -----------             -----------
Net interest income .........................................            $   813,022            $   143,738             $   956,760
                                                                         ===========            ===========             ===========
</TABLE>

Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
                                                                                  For the three months ended September 30, 2002
                                                                                  Versus three months ended September 30, 2001
                                                                                  --------------------------------------------
                                                                                Volume                  Rate              Net change
                                                                                ------                  ----              ----------
<S>                                                                             <C>                  <C>                   <C>
Federal funds sold .................................................            $  54,800            $ (35,496)            $  19,304
Investments ........................................................               59,280              (30,261)               29,019
                                                                                ---------            ---------             ---------
Total investments and federal funds sold ...........................              114,080              (65,757)               48,323
Total loans ........................................................              651,516             (363,370)              288,146
                                                                                ---------            ---------             ---------
Total earning assets ...............................................              765,596             (429,127)              336,469
Total interest-bearing liabilities .................................              423,325             (377,422)               45,903
                                                                                ---------            ---------             ---------
Net interest income ................................................            $ 342,271            $ (51,705)            $ 290,566
                                                                                =========            =========             =========
</TABLE>















                                       10
<PAGE>


NON-INTEREST INCOME AND EXPENSES

         Non-interest  income for the nine months ended  September  30, 2002 was
$1,333,681,  compared to $776,938 for the nine months ended  September 30, 2001.
The increase is due to gains on securities  sold,  the increase in the number of
deposit accounts generating increased fees on deposits, gain on sale of property
and increased volume of loans sold.


         Non-interest expenses for the nine months ended September 30, 2002 were
$3,609,491,  compared to $2,922,498 for the nine months ended September 30,2001.
The  increase of $686,993 is mainly  attributable  to  increases in salaries and
benefits,  occupancy cost,  furniture and equipment  expense and  administrative
expenses.  These increases primarily relate to expenditures  associated with the
opening of the Coleman  branch in December  2001 and the Johns Island  branch in
March  2002,  as well as the  formation  of a sales  staff and the  increase  in
administrative staff to support the growth of the Company's operations.



         Non-interest  income for the three months ended  September 30, 2002 was
$458,575,  compared to $278,559 for the three months ended  September  30, 2001.
The increase is due to the increase in the number of deposit accounts generating
increased fees on deposits and a gain on sale of property.

         Non-interest  expenses for the three months  ended  September  30, 2002
were  $1,240,303,  compared to $1,020,229  for the three months ended  September
30,2001.  The  increase of  $220,074  is mainly  attributable  to  increases  in
salaries and benefits,  occupancy  cost,  furniture  and  equipment  expense and
administrative  expenses.  These  increases  primarily  relate  to  expenditures
associated with the opening of the Coleman branch in December 2001 and the Johns
Island branch in March 2002,  the formation of a sales staff and the increase in
administrative staff to support the growth of the Company's operations.

LIQUIDITY

         Liquidity is the ability to meet current and future obligations through
liquidation or maturity of existing  assets or the  acquisition of  liabilities.
The Company manages both assets and liabilities to achieve appropriate levels of
liquidity.  Cash and short-term investments are the Company's primary sources of
asset liquidity.  These funds provide a cushion against short-term  fluctuations
in cash flow from both  deposits  and loans.  The  investment  portfolio  is the
Company's   principal  source  of  secondary  asset  liquidity.   However,   the
availability  of this  source  of  funds is  influenced  by  market  conditions.
Individual  and commercial  deposits and  borrowings  from the Federal Home Loan
Bank are the  Company's  primary  source of funds  for  credit  activities.  The
Company also has a $3.5 million line of credit with the Bankers Bank of Atlanta.
Management  believes that the Company's  liquidity  sources are adequate to meet
its normal operating needs.


LOANS

         Commercial loans made up 50.7 percent of the total loan portfolio as of
September 30, 2002,  totaling  $63.6  million.  Loans secured by real estate for
construction and land  development  totaled $14.9 million or 11.9 percent of the
portfolio  while all other loans secured by real estate totaled $42.3 million or
33.7 percent of the total loan  portfolio as of September 30, 2002.  Installment
loans and other  consumer  loans to  individuals  comprised  $4.6 million or 3.7
percent of the total loan  portfolio.  The  allowance  for loan  losses was 1.23
percent  of loans as of  September  30,  2002  compared  to 1.20  percent  as of
December 31, 2001.  In  management's  opinion,  the allowance for loan losses is
adequate.  At  September  30,  2002,  the Company did not have any loans 90 days
delinquent and still accruing interest and had $546,000 of non-accruing loans.


                                       11
<PAGE>

CAPITAL RESOURCES

         The capital base for the Company  increased by $4,827,221 for the first
nine  months of 2002,  due to the  issuance of $4.0  million of Trust  Preferred
Securities, operating income, capital raised through the Employee Stock Purchase
Plan,  offset  by  unrealized  losses  on  available  for sale  securities.  The
Company's  tier one capital to asset ratio was 9.6 percent as of  September  30,
2002 compared to 9.3 percent as of December 31, 2001.


         The Federal Deposit  Insurance  Corporation has established  risk-based
capital  requirements  for  banks.  As of  September  30,  2002,  the  Company's
subsidiary  bank  exceeds  the  capital   requirement  levels  that  are  to  be
maintained.


                                 Capital Ratios

<TABLE>
<CAPTION>
                                                                                     Well Capitalized      Adequately Capitalized
                                                              Actual                   Requirement              Requirement
                                                              ------                   -----------              -----------
                                                       Amount         Ratio       Amount         Ratio      Amount          Ratio
                                                       ------         -----       ------         -----      ------          -----

<S>                                                   <C>             <C>        <C>             <C>        <C>               <C>
Total capital to risk weighted assets ........        $14,596         11.69%     $12,491         10.00%     $ 9,993           8.00%
Tier 1 capital to risk weighted assets .......        $13,056         10.45%     $ 7,494          6.00%     $ 4,997           4.00%

Tier 1 capital to average assets .............        $13,056          8.43%     $ 7,742          5.00%     $ 6,193           4.00%
</TABLE>

Item 3.  Controls and Procedures.


         (a) Based on their evaluation of the issuer's  disclosure  controls and
procedures (as defined in 17 C.F.R. Sections 240.13a-14(c) and 240.15d-14(c)) as
of a date  within 90 days  prior to the  filing of this  quarterly  report,  the
issuer's  chief  executive  officer  and  chief  financial  concluded  that  the
effectiveness of such controls and procedures was adequate.

         (b) There were no significant changes in the issuer's internal controls
or in other factors that could significantly affect these controls subsequent to
the date of their  evaluation,  including any corrective  actions with regard to
significant deficiencies and material weaknesses.




                                       12
<PAGE>


                           PART II - OTHER INFORMATION

ITEM 6.  Exhibits and Reports on Form 8-K.

a)       Exhibits:





b)       Reports on form 8-K.      None.








                                       13
<PAGE>


                                   SIGNATURES


         In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.


                                               Southcoast Financial Corporation
                                                  Registrant



Date:      November 13, 2002                   By: s/L. Wayne Pearson
     -----------------------                       -----------------------------
                                                   L. Wayne Pearson
                                                   President and Chief Executive
                                                   Officer


Date:      November 13, 2002                   By: s/Robert M. Scott
     -----------------------                       -----------------------------
                                                   Robert M. Scott
                                                   Executive Vice President and
                                                   Chief Financial Officer




                                       14
<PAGE>


                                  CERTIFICATION

         I, L. Wayne Pearson, certify that:

         1. I have reviewed this  quarterly  report on Form 10-QSB of Southcoast
Financial Corporation;

         2. Based on my knowledge,  this  quarterly  report does not contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this quarterly report is being prepared;

         b) evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
quarterly report (the "Evaluation Date"); and

         c)  presented  in this  quarterly  report  our  conclusions  about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

         a) all significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this quarterly report whether or not there were significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    November 13, 2002                    s/L. Wayne Pearson
       --------------------                  -----------------------------------
                                               L. Wayne Pearson
                                               Chief Executive Officer



                                       15
<PAGE>

                                  CERTIFICATION

         I, Robert M. Scott, certify that:

         1. I have reviewed this  quarterly  report on Form 10-QSB of Southcoast
Financial Corporation;

         2. Based on my knowledge,  this  quarterly  report does not contain any
untrue  statement of a material fact or omit to state a material fact  necessary
to make the  statements  made,  in light of the  circumstances  under which such
statements  were made, not misleading with respect to the period covered by this
quarterly report;

         3. Based on my knowledge, the financial statements, and other financial
information  included in this quarterly  report,  fairly present in all material
respects the financial  condition,  results of operations  and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

         4. The registrant's other certifying officers and I are responsible for
establishing and maintaining  disclosure  controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

         a) designed  such  disclosure  controls and  procedures  to ensure that
material  information  relating to the  registrant,  including its  consolidated
subsidiaries, is made known to us by others within those entities,  particularly
during the period in which this quarterly report is being prepared;

         b) evaluated the effectiveness of the registrant's  disclosure controls
and  procedures  as of a date  within 90 days prior to the  filing  date of this
quarterly report (the "Evaluation Date"); and

         c)  presented  in this  quarterly  report  our  conclusions  about  the
effectiveness of the disclosure  controls and procedures based on our evaluation
as of the Evaluation Date;

         5. The  registrant's  other  certifying  officers and I have disclosed,
based on our most recent evaluation,  to the registrant's auditors and the audit
committee  of  registrant's  board  of  directors  (or  persons  performing  the
equivalent functions):

         a) all significant  deficiencies in the design or operation of internal
controls  which  could  adversely  affect  the  registrant's  ability to record,
process,  summarize  and  report  financial  data  and have  identified  for the
registrant's auditors any material weaknesses in internal controls; and

         b) any fraud,  whether or not  material,  that  involves  management or
other  employees  who  have a  significant  role  in the  registrant's  internal
controls; and

         6. The registrant's  other certifying  officers and I have indicated in
this quarterly report whether or not there were significant  changes in internal
controls or in other factors that could  significantly  affect internal controls
subsequent to the date of our most recent  evaluation,  including any corrective
actions with regard to significant deficiencies and material weaknesses.

Date:    November 13, 2002                          s/Robert M. Scott
     ----------------------                         ----------------------------
                                                    Robert M. Scott
                                                    Chief Financial Officer










                                       16